Grain elevators had false bottoms; freight rates had no ceilings. The farmers raised the roof, and government regulation crossed industry’s threshold

One fine November day in 1848 a railroad locomotive christened the Pioneer chugged westward out of Chicago a distance of eight miles. It pulled only a single coach, a baggage car temporarily outfitted to carry a handful of prominent Chicagoans being treated to one of the first runs of the Galena & Chicago Union Railroad. Spotting a farmer driving an ox wagon filled with wheat and hides toward Chicago, two of the passengers purchased the goods and transferred them to the baggage car. The train then returned to its home city. This simple event foreshadowed the future course of Chicago’s development: within twenty years the modest railroad comprising ten miles of track became the giant Chicago & North Western, one of the roads that made Illinois the nation’s leader in railroad mileage; while the city itself grew tenfold to a population of 300,000. The inflow of wheat, which had begun when a group of men on a one-car train hauled a few bushels, amounted to tens of millions of bushels annually.

“Let the golden grain come, we can take care of it all,” cried a Chicago newspaper of the 1850’s. And come it did. Illinois was a major grain producer, and Chicago—“the New York of the West”—enjoyed a strategic location that made it the key transfer point for transcontinental trade. Systems like the Chicago & North Western and the Illinois Central funnelled in wheat, corn, and barley from the immense cereal carpet that lay to the city’s west and northwest. During the sixties it became one of the world’s primary grain markets; through the wonder of the telegraph, price fluctuations in the Chicago market were quickly communicated to the world and affected prices in New York and faraway Liverpool. At the center of these transactions stood the Chicago Board of Trade, the focal point for the buying and selling of grains, flour, and other foodstuffs. A contemporary called the Board “the Altar of Ceres,” and the label was apt. Grain, and the money it might bring, was indeed a goddess to be worshipped by the restless merchants of the Board of Trade.

To accommodate the huge quantities which flowed in and out of Chicago there developed a most lucrative business, that of storing the grain in warehouses until it was sold and shipped east. (Railroad connections were such that direct shipments to eastern centers were difficult or impossible.) Known as grain elevators, the warehouses were skyscrapers able to hold 500,000 to 1,000,000 bushels in elongated, perpendicular bins that were mechanically loaded by the lifting up of dump buckets fastened to conveyor belts. Once the grain was deposited there, the warehousemen facilitated sales to merchants and speculators by issuing them receipts to represent the amount in storage. These receipts were regarded as stable tokens of value comparable to bank bills; and presumably a warehouseman, like a banker, held a position of public trust demanding a high level of integrity. The presumption, however, proved to be quite unjustified.

The history of the great Chicago grain elevators is reflected in the rise and fall of Munn & Scott, a firm founded in Spring Bay, Illinois, in 1844. The two partners, Ira Y. Munn and George L. Scott, ran a small (about 8,000 bushels capacity) warehouse that served the north central part of the state. Munn, who was the firm’s driving spirit, soon expanded his operations. Taking advantage of the opportunities presented by the growing commercial ascendancy of Chicago, he established a 200,000-bushel grain elevator there in 1856 under the name of Munn, Gill & Co. Two years later it became Munn & Scott, one of Chicago’s thirteen elevator firms, which had a combined storage capacity of over four million bushels.

The next decade—one that belonged to America’s capitalists—was enormously prosperous for Munn & Scott. They expanded to four elevators with a total capacity of 2,700,000 bushels; they could receive as many as 300,000 bushels daily and ship out twice that number. With success came power and prestige. Ira Munn emerged as a leading Chicago businessman; he was prominent in the affairs of the Board of Trade, serving as its president in 1860 and as president of the city’s Chamber of Commerce in 1868. During the Civil War he participated conspicuously in activities supporting the Union cause. At the same time, good capitalist that he was, Ira Munn diversified his enterprises by engaging in wholesale grain speculation and by investing in newspapers and banks.

On the surface all seemed well for Munn & Scott, but they had their problems. These, in large measure, were of their own making; the age of enterprise was also an age of corruption, and the Chicago warehousemen were not at war with the spirit of their age. By 1868 Munn & Scott and four other firms dominated the field. They were interlocked in a business pool, each owning part interest in each of the others. They could thus fix prices and force farmers, who had to store their grain prior to sale, to pay high storage fees. There were cruder forms of chicanery. The warehousemen commonly made deals with the railway men whereby they were assured of receiving the grain carried by a particular line, regardless of the shipper’s consignment. Munn & Scott, for instance, received most of their grain from the Chicago & North Western. Another practice was to issue bogus receipts not backed by actual grain. Yet another favorite trick, performed with allied speculators, was to spread false rumors that the grain was spoiling; unsuspecting merchants would hasten to unload their grain receipts at depressed prices, thus setting up a juicy profit for the warehousemen.